Irvine water district undeterred by ruling in tiered-rate case

Home and business owners who buy water from the Irvine Ranch Water District probably won’t see a price change anytime soon.

On the heels of a California appeals court ruling this week that found San Juan Capistrano’s tiered water rate structure illegal, the Irvine-based district issued a statement defending its tiered pricing.

“The Irvine Ranch Water District allocation-based conservation rate structure promotes water efficiency and is based on the cost of service; is equitable and fair; promotes sustainable behavior change [and] has shown to be effective in reducing water use,” the statement says.

In the 4th District Court of Appeal opinion issued Monday, Presiding Justice William Bedsworth wrote that San Juan Capistrano’s tiered rate system is illegal because it charges more for water than it costs the city to provide the service.

San Juan Capistrano, which adopted its rate structure in 2010, separated customers into four tiers based on the amount of water they use. The city charged customers $2.47 per unit — 748 gallons — of water in the first tier and up to $9.05 per unit in the fourth.

The Capistrano Taxpayers Assn. sued the city in 2012, alleging that the rates violated Prop. 218, a law approved by California voters in 1996 that requires government fees to be set in accordance with service costs.

A trial court and the appellate court sided with the taxpayers association.

“The water agency here did not try to calculate the cost of actually providing water at its various tier levels,” Bedsworth wrote in the 4th District opinion. “It merely allocated all its costs among the price tier levels, based not on costs but on predetermined usage budgets.”

Bedsworth wrote that the agency “admitted those tiers don’t reflect the cost of service.”

The majority of water agencies statewide have some type of tiered rate structure, which uses sharp price increases to penalize customers who use amounts of water deemed excessive. Other agencies charge a uniform rate.

Though Monday’s ruling did not invalidate all tiered water rates, it caused officials to look into the legality of their price structures.

The Irvine Ranch Water District, which serves 384,154 customers in Irvine, Newport Beach, Costa Mesa, Tustin. Orange, Lake Forest and several unincorporated areas, said this week that its tiered rates comply with state law.

The district, which adopted its five-tier structure in 1991 in response to a Southern California drought, charges customers 88 cents per unit of water in the first tier and up to $12.60 per unit in the fifth, according to agency data.

The district sets a customized water allocation for each customer based on factors such as irrigated area, number of residents in a household, business type and more unique characteristics such as the presence of a pool, livestock or specialized industrial equipment. Water is then priced based on the monthly allocation, according to a district report.

“Customers using water within their allocation purchase water in the lower two tiers and are rewarded with very low water bills,” the report states. “Customers using in excess of their allocation also purchase water in one to three steeply ascending upper tiers, resulting in high water bills and a strong pricing signal for excessive use.”

As a severe drought persists throughout the state, local water officials say tiered rates have been effective in encouraging customers to conserve.

“It puts the customer in the driver’s seat in understanding their monthly water use,” said Beth Beeman, public affairs director for the Irvine Ranch Water District. “It sends them a nice price signal to reassess their water use.”

However, agencies that charge customers in more uniform ways don’t believe there is justification to charge higher rates for using more water. For example, the Mesa Water District, which serves 108,000 customers in Costa Mesa and Newport Beach, has a rate structure that charges the same for each unit of water used.

The district filed a brief with the appellate court in support of the lawsuit against San Juan Capistrano.

“Our cost to provide water is uniform, and therefore our rate structure is uniform,” said Paul Shoenberger, general manager of the Mesa Water District, which charges $3.40 per unit of water.

Uniform rate structures also can achieve conservation because a customer who uses less will pay less, Shoenberger said.

-Daily Pilot staff writer Bradley Zint contributed to this report.